12. The Problem of Luck

A common criticism of free-market decisions is that “luck” plays too great a role in determining incomes. Even those who concede that income to a factor tends to equal its discounted marginal value product to consumers, and that entrepreneurs on the free market will reduce mistakes to an absolute minimum, add that luck still plays a role in income determination. After charging that the market confers undue laurels on the lucky, the critic goes on to call for expropriation of the “rich” (or lucky) and subsidization of the “poor” (or unlucky).

Yet how can luck be isolated and identified? It should be evident that it is impossible to do so. In every market action luck is interwoven inextricably and is impossible to isolate. Consequently, there is no justification for saying that the rich are luckier than the poor. It might very well be that many or most of the rich have been unlucky and are getting less than their true DMVP, while most of the poor have been lucky and are getting more. No one can say what the distribution of luck is; hence, there is no justification here for a “redistribution” policy.

In only one place on the market does luck purely and identifiably determine the result: gambling gains and losses.23 But is this what the statist critics really want—confiscation of the gains of gambling winners in order to pay gambling losers? This would mean, of course, the speedy death of gambling—except as an illegal activity—for there would obviously be no point in continuing the games. Presumably, even the losers would object to being compensated, for they freely and voluntarily accepted the rules of chance before beginning to gamble. The governmental policy of neutralizing luck destroys the satisfaction that all the participants derive from the game.24

• 23Here we refer to pure gambling, or games of chance, such as roulette, with no intermingled elements of skill such as in race-track betting.
• 24It is curious that so many economists, including Alfred Marshall, have “proved” the “irrationality” of gambling (e.g., from the diminishing marginal utility of money) by first assuming, clearly erroneously, that the participants do not like to gamble!